Good catch. Pretty sure that loophole wasn't intended... Then again, lots of this code was written in a different time, when people weren't as skilled (and creative) as they are now. But, as players change, so should the code.
I'm going to write some words about the background for auto retirement and some thoughts about what can be done about it.
If I recall correctly, there were basically three reasons for the auto-retire. One was to recycle artifacts, the second was to recycle houses and the third was to bring the character out of the economy. Having a bunch of advanced level 50's with infinite amounts of great gear for sale is no good. Prices will drop and severely affect the difficulty of the game, making it easier. Which in turn leads to a game that is significantly less enjoyable for many players. Another reason, which is considerably less "practical"... is that when / if you win, that's it, you're done, you succeeded. You can (and should) retire to a warm, sunny climate. I have no problem in seeing how some players disagree with this view however.
In the next version we will introduce house building, which will act as a great money sink, as well as eliminate the housing shortage (at least for those high level characters we're talking about here). With house building I expect that level 50's will be spending most their money on expanding their houses, and as such money would begin to have value for them again. Which in turn would (hopefully) prevent them from selling unlimited amounts of great items for minimum price. That leaves us with winners hoarding artifacts as the only practical reason to forcefully retire them. And I'm sure we could come up with some alternative solution for those players who'd prefer to play on, forever. Perhaps we could replace artifacts with similar ego items or introduce a new type of "replacement" artifacts.
In the Wish List / Think Tank area of the forums we have a subforum called
"New MAngband Items". My original plan for these items were that they should have the potential to "replace" any of the high end artifacts. Now, to solve the issue of "what to do with the artifacts of players that win", I'm thinking that this could be a solution. Today, many of the high level characters will be more excited about finding a perfect orcish avari shield than finding a top artifact. If they're more excited about the artifact, it is usually because there is no ego item that comes close. So, replacing an artifact with a perfect combination of base / ego item should hopefully give a certain "cool" factor that could make it easier to accept that the artifacts should return to the game and help another player achieve what they have. I suspect that for most players, winning would be the "easiest" way to get their hands on these items.